New Delhi, June 07, 2024.
RBI Governor Shaktikanta Das announced the Monetary Policy Committee (MPC) decisions. India’s central bank left its benchmark interest rate unchanged, as expected, keeping its focus on inflation amid policy uncertainty following an unexpected election result. The MPC convened in Mumbai this week to deliberate on key policy decisions. This comes as food inflation has been a persistent concern, with urban areas experiencing a 1.03 per cent rise while rural areas seeing a 0.59 per cent increase in April, leading to a combined national food inflation increase of 0.74 per cent. The decision comes amid robust growth momentum as retail inflation hit an 11-month low in April 2024 at 4.83 per cent. The number has remained within RBI’s tolerance band of 2-6 per cent.
The MPC meeting outcome was cheered by the equity market, but the debt market didn’t react much to the MPC meeting announcement. The market would perhaps be more keen to look for the Union Budget announcement on the government’s fiscal roadmap going forward. Insurance companies with a greater focus on fixed-income portfolios in their life funds would not have been significantly impacted by this MPC decision. The equity portfolio of the insurance companies has made some positive MTM gains, though, said Ajit Banerjee, CIO – Shriram Life Insurance Company.
“The RBI’s decision to maintain the repo rate steady for the eighth consecutive time reaffirms its focus on achieving a 4% inflation target sustainably. The decision reflects a prudent stance in balancing growth concerns and inflationary pressures. With India’s GDP growth momentum remaining strong, the RBI is ensuring a balanced approach to fostering economic growth and financial stability. Said “Sujata Guhathakurta, President, Debt Capital Markets and Infrastructure Financing Business, Kotak Mahindra Bank.
We maintain that the RBI will not precede the Fed in any policy reversal in CY24 and policy management will have to stay vigilant amid the fluidity of global narratives. Anchor rates like the RBI policy rate change will likely be a story from 1QCY25, assuming Fed cuts shift to next year. However, other factors like liquidity could keep RBI on tenterhooks on the policy management front, said Madhavi Arora, Lead – Economist at Emkay Global Financial Services.
We continue to see FY25E GDP ease sharply to 6.5%, with a normalizing GDP-GVA wedge, slowing manufacturing, and a not-too-exciting consumption story. We think the growth outcome will likely see cyclical headwinds in the form of: 1) restrictive net fiscal impulse, 2) fading commodities-led terms-of-trade benefits, 3) tighter lending standards, 4) weaker exports, and 5) mean reversion of deflator-related growth boost, she added.
